Huhne and the universal benefit conundrum

davidk

Forget these differences of an arcane nature to the public, I rather think that the days attention-gaining headlines will be of the nature of: "Chris Huhne hints at shift in public sector cuts", as it is on the BBC website.

LibertarianLou

I support the child benefit cut (although don't think the government should be penalising single parents and giving marriage incentives through tax, which this policy does).

But surely if the Culture secretary can have views on it, the Energy Secretary can? I don't think it is actually in the remit of either one!

Bloody Bill Brock

It makes one wonder what game these idiots are trying to play. Tories, "its gonna be tough and its gonna be rough", Liberals, "well it might not be to bad, especially if it looks like a double dip". Who gains? The a?seholes who caused the problem, Labour. Effing brilliant.

David Ossitt

“Chris Huhne has given an interview to the Telegraph. According to the front page report, the Energy Secretary has nothing to say about nuclear power, new wind farms or energy security; but rather a lot to say about economic and social policies that are strictly beyond his purview.”

David Cameron and Nick Clegg should both come down on Chris Huhne like a ton of bricks, he is a member of the cabinet for goodness sake, it is not for him to give the Labour Party political-hand grenades to lob at the government.

David Ossitt

Look at the photograph; he walks like a man desperately trying not to step in the ordure, that he himself, has just spread on to the pavement.

TGF UKIP

Would be completely out of character with the last five years if they didn't resile. Dave's bugle is never more than one note away from sounding the retreat.

Dimoto

Huhne is just setting up his independent position as a biddable politician, to the left of Clegg (a sort of 'come on' to Red).

The LibDems have a major problem with collective responsibility, especially when a short-term opportunity presents itself - they react like pooches catching a whiff of a choice truffle.
We have had Hughes and Vince playing to the (Social Democrat) gallery, now it's Huhne's turn.
Cameron needs to urgently bring Laws back to add some ballast to the LibDems in government and give Huhne-the-ambitious, something else to worry about.

Alex Sabine

Although parts of the media are trying to spin this a 'splits' story, the reality is rather less dramatic if you read the full interview. In most respects Huhne has been, and remains, quite prepared to defend the government's approach.

The Lib Dems' opposition to the married tax allowance is not news. In that context I think his comments are perfectly reasonable. Especially since (as he implies) this policy looks likely to be tokenistic and was only floated again last week due to the fallout over the child benefit plans (which were right in concept but flawed in design and shambolically presented).

Huhne says: "[As with] all other issues, I'm quite happy to be open-minded and talk it through. But in the current circumstances, where we are very constrained in... terms of tax breaks, then I think we need to make sure that what we're doing is real value for money and not flag waving. If it is just flag waving, then frankly it's probably not something that the government ought to be doing."

In any case, the married tax allowance is one of the few areas where the coalition agreement specifically acknowledges the two parties' different views and allows the Lib Dems to abstain on the relevant budget resolutions.

David, I don't think Huhne does have an objection to curtailing universal benefits. Quite the reverse: he supports the child benefit changes and puts the case for extending the same principle to the winter fuel allowance.

On child benefit he says: "Is it right that people at the top - and remember that we're only talking about people in the top 15 per cent of incomes - should be paid the same benefit we're paying to people at the bottom?"

(Interestingly, that could be interpreted as arguing child benefit should be gradually tapered away rather than removed altogether when you get to the 'cliff edge' point around £42,000 - but that's a secondary point here).

And when asked if he would welcome winter fuel payments being scaled back, he replies: "We need to look at all aspects of benefits to make sure we're getting value for money. Yes, of course."

I'm sure Cameron and Osborne agree, but unfortunately they are hemmed in by unwise election pledges and may feel they couldn't get away with another U-turn given the bitter clash on this between Cameron and Brown in the debates.

I agree that he's more ambiguous on the benefit cap policy (it was this, not the child benefit changes, that Jeremy Hunt was alluding to). But it seems to be the implication of social engineering that he objects to rather than the £26,000 cap itself. Hence: "There are limits to how much we can achieve through changes in the tax and benefits system." This is the sort of point Ken Clarke used to make when he was still Chancellor (and indeed sometimes still does!).

Of course, the welfare system is such a complex mess that it creates many perverse incentives as it is, and that is the point that - in a clumsy way - Hunt was presumably making.

Alex Sabine

On the deficit, Huhne has made the same point - that the pace of deficit reduction needs to take some account of economic circumstances - several times before, indeed he's used the same sailing metaphor!

I agree with that, as I suspect do most economists, including many of those who supported the emergency budget.

Clearly if there were to be a double-dip recession because the private sector is weaker than expected (which Huhne thinks is possible, but not likely), then the government would have to rethink the phasing of the cuts and tax increases.

In those circumstances, sticking to the pre-conceived timetable would not stop the fiscal numbers from going awry. The government would miss its target for stabilising debt:GDP regardless, because that depends on GDP rising, not falling, in the coming years.

That's what Huhne means when he says that the government might need to "tack about" to get to its planned destination if the economic winds change.

So far, so good. Where I think his logic is less sound is that he apparently thinks the cuts could also be slowed down if the economy performs better than expected, since growth would do more of the work.

There are no direct quotes from him on this, but the BBC's political correspondent Mike Sergeant says: "Mr Huhne's argument is that if the economy performs better, cutting spending could be less urgent. If things deteriorate, deep cuts could be economically dangerous."

While I agree with the second proposition, I don't agree with the first. Indeed, if the economy performs better than expected, you could argue that the cuts should be accelerated since the economy would be more able to withstand them.

More realistically perhaps, the government should just stick to its course and satisfy itself that the debt ratio would be falling more quickly than forecast.

Again, there are no direct quotes from Huhne on this. But he seems to be fixated on one particular goal: stabilising and beginning to reduce the debt:GDP ratio by the end of the Parliament.

That is arguably the key measure of sustainability, but it is only one of the government's two stated targets. The other one, indeed the core 'fiscal mandate', is to eliminate the structural current deficit over five years.

Because this borrowing is structural, it is impervious to the cyclical recovery of the economy. So if the economy recovers faster than expected, debt:GDP will fall more quickly but the structural deficit will be just as large (unless the OBR changes its estimate of what proportion of the deficit that is structural rather than cyclical).

So the same overall level of tightening would be needed to eliminate the structural deficit in five years, it's just that it would be done against a more favourable economic (and therefore political) backdrop.

But rather than using the favourable economic backdrop to dilute the tough measures, the government should use the political capital it would bring to stick resolutely to its published timetable.

So overall I think Huhne is only half-right if his views have been reported accurately.

But he is not a dissenter on the strategy the government is currently pursuing. Indeed he makes the point that not dealing with the deficit credibly would itself derail the recovery.

After the BBC ran their story Huhne's spokesman put out this statement: "Chris Huhne was crystal clear that he stands full square behind the chancellor's emergency Budget and that tackling the record deficit inherited by this government is unavoidable.

"He believes that unless the nation's debt is dealt with and spending is reduced, that we run the real risk of the recovery coming to an end."

So yes, he puts forward a nuanced version of the Cameron/Osborne line in that he considers what might happen in the event that the economy goes into a tailspin - but no split.

local local

Oh please. Wood, trees?

The whole Child Benefit/benefit cap thing was the Treasury lashing out at IDS for getting his way over Universal Credit, which is Brown's tax credits done properly.

They cocked up Tax Credits spectacularly, now IDS, the much pilloried former Leader of the Opposition who they saw as an irrelevance has now shown them how to do it and they are cross, cross, cross.

There is still a Brownite tendency there and they want to try to stamp their authority on this. So they cooked up the CB thing and left IDS to take the flak and the maximum cap just will not fly within Universal Credit, which will give some support to people up to about £44,000 of earnings.

It would be simply inhumane to ask a family of two adults and two children, living in London to survive on £120 a week after housing costs. Treasury know it, IDS knows it and it just isn't going to happen.

strapworld

Now, come on, who would be surprised IF they watered down the cuts?

They talk tough, but I am getting concerned that apart from four conservatives and two liberal democrats the others will be hiding in their bunkers!

Woody

David Cameron should get these bloody idiots together and bang a few heads. All they are doing is feeding the media and creating confusion in the minds of the public, who quite frankly don't need.

JohnAnt

I simply don't understand the rationale behind Child Benefit. 'Men can't be trusted' not to spend a tax-rebate on a sub at Whites or a bottle of Petrus. But women somehow can be trusted not to spend it on hairdressers and girlie lunches.
Has anyone ever tested the actual cost/benefit ratio and the measurable effect on a child's welfare of Child Benefit, or its absence? I mean, if parents didn't have it - even the poorest - they'd simply economize on something else and make do. And we'd lose an entire regiment of admin - which is presumably why the civil service has been covertly sabotaging the Chancellor's plans.
Jettison it completely, I say.

laverda

Labour have still not realised that this government not only allows ministers to have different views, but encourages them to express them.
More than 70% of the electorate believe it is wrong for people on incomes of over £40K per year shpould not get supported by low paid workers on as little as £8k per year.
Similarly most people believe winter fuel allowance should not be paid to wealthy retirees living in hot countries.
Why should anyone on benefits get paid more than people earning £10K per year?
Labour/Brown and tax credits etc. ruined this country.

denis cooper

The whole point of coppicing is that the bush or tree will grow back and can then be coppiced again.

Explained here:

http://www.coppice.co.uk/

A chain saw makes it easier, although provided it's not been left for too many years much of it can be done with a handsaw and there's less risk of personal injury.

Pollarding is a similar practice but the new growth is promoted on branches some way above the ground, which is preferred where animals would browse on new shoots close to ground level.

I coppiced a row of hazel bushes last year with hand saws, but got a bloke in to climb up and use a chainsaw to pollard a chestnut tree.

But do we really want to have to do this to the welfare state every ten or fifteen years?

Chuck Unsworth

Huhne is a bit of a Hoon, really. He hasn't quite got the idea of teamwork yet, has he? Maybe he should be placed on the bench for a while.

Marcher Baron

I'm all in favour of limiting child benefit (if I had my way, I'd abolish it for more than two children). Why should breeding be subsidised? If you want children, pay for them yourselves. If you can't afford them, don't have them - don't expect somebody else to pick up the tab. As for pensioners - nobody chooses to get old with all the problems that go with it. Once you're on a pension, there is no way you can increase your income, especially with no return on any savings.

normanc

The problem I have with Huhne's statements regarding cutting back cutting (what?) is that he is implicitly supporting the Labour / Keynesian position that cutting public spending is taking money out of the economy (patent nonsense).

He and St Vince should get together and do a series of programmes for the BBC to re-educate us proles in matters of economics.

Or a Christmas variety show in the vein of Morecambe and Wise. I could see the pair of them dancing away in top hat and tails.

It's difficult to say which choice would be of most benefit to the country.

Alex Sabine

Normanc: You're right that cutting public spending, in and of itself, is not the same as 'taking money out of the economy' - contrary to the claims of Brown and Balls, who seem to believe that any money not spent by the state is wasted.

But if spending cuts are part of a deficit reduction programme, and so perforce aren't offset by tax cuts, then clearly the effect is to reduce aggregate demand in the economy. This is a relatively uncontroversial point, even among economists.

Now that doesn't mean that spending cuts aren't necessary, or are bad policy. Clearly, there is a big structural deficit that must be closed; and having a credible plan to do so should boost confidence and thereby support the recovery.

But that doesn't negate the point that economic growth can only come from four sources: spending by consumers, spending by the government, investment by businesses, or net trade (exports).

If one of or more of those taps is turned off, then - as a simple matter of logic - one or more of the others has to pick up the slack if a recession is to be averted.

The markets know this, which is why they fluctuate between concerns about sovereign debt to concerns about the effect of cuts on economic growth in a situation where private demand and global trade is still fragile.

The key, it seems to me, is to have a *credible* deficit reduction plan that the markets believe in. If the economic outlook deteriorates, that might involve phasing in the cuts more gradually.

But that doesn't change the overall scale of the task, which is to eliminate the structural budget deficit.

This commitment must remain resolute even if there is a degree of flexibility over the timing and phasing of cuts - and provided it does, the markets will retain confidence.

If, on the other hand, they believe the government's numbers won't add up because the economy is going to nosedive, then there will be a loss of confidence and rise in gilt yields regardless of the government's declared targets.